The Three-Horizon Theory in Infrastructure Planning
I've been working on the Handout for my Autodesk University Class (I had almost forgotten how much work that entails), and since it's now possible to enrol on classes from the digital catalogue, I thought I would give you a sneak peek of what my class is going to be about.
My class is titled “The Three-Horizons Problem: Using LEGO Serious Play for Climate-Resilient Infrastructure Design” (id. CI1542). So... what's the Three-Horizons Theory and how does it fit for infrastructure design in the context of resiliency and climate change?
Here's a snippet of a first draft for my Handout.
The Three-Horizon Theory
The Three Horizons Theory is a strategic framework that aids organizations in managing the present while preparing for future opportunities and challenges. Originally developed by Mehrdad Baghai, Stephen Coley, and David White in their book The Alchemy of Growth (1999), the theory provides a structured approach to balancing short-term goals with long-term innovation and emphasizes the importance of finding a balance between nurturing new ideas and ensuring ongoing organizational growth.
The framework divides focus into three distinct time horizons:
Coley served as a director emeritus in McKinsey's Chicago office, and this is why the framework is better known as the McKinsey Three Horizons Model.
Horizon 1: Managing the Core Business
Horizon 1 focuses on managing the core business, emphasizing the importance of maintaining and defending existing operations. This horizon is about ensuring that the organization's current business model remains robust and profitable in the present market environment. To focus on this horizon, organizations must concentrate on improving operational efficiency, optimizing processes, and maximizing profitability through various means, such as refining existing products and services, implementing cost-control measures, and enhancing customer satisfaction.
At the heart of Horizon 1 is a short-term focus on sustaining and improving the current business landscape. Companies are required to have a deep understanding of their existing markets, customer needs, and competitive landscape to adapt quickly to changes that could impact their core operations, and this involves continuously analyzing market trends and customer feedback to identify areas where improvements can be made. For example, a retail company might optimize its supply chain logistics, enhance customer service protocols, and expand its product offerings to meet immediate consumer demands.
Risk management also plays a critical role in Horizon 1. Organizations must be vigilant in identifying and mitigating potential risks that could threaten their core business by assessing various risk factors such as economic fluctuations, competitive pressures, and technological disruptions. By implementing effective risk management strategies, companies can protect their existing assets and ensure stability in their operations.
Another crucial aspect of Horizon 1 is incremental improvement. This approach focuses on making small, continuous enhancements to existing processes and products. By adopting a mindset of continuous improvement, organizations can maintain their competitive edge and adapt to changing market conditions. For instance, a technology company may focus on regular software updates and feature enhancements to keep its products relevant and appealing to customers.
Horizon 1 and infrastructure planning
Recognising that infrastructure planning plays a crucial role in the development of resilient and sustainable communities, and keeping in mind the criticalities of applying a business development model to this scenario, the concepts incorporated in Horizon 1 can be applied to the topic at hand, as these concepts focus on maintaining existing assets, improving efficiency, mitigating risks, and ensuring stability—key elements necessary for building infrastructure that can withstand the challenges posed by climate change.
Operational Efficiency and Optimization translates into maximizing the performance and longevity of existing infrastructure. This involves regularly maintaining roads, bridges, power grids, and water systems to ensure they operate effectively and can handle increased stress from climate-related events. For example, water management systems can be optimized by implementing smart technologies that monitor and manage water usage, reduce leakages, and improve distribution efficiency. These improvements not only extend the lifespan of the infrastructure but also enhance its ability to cope with droughts or flooding, which are becoming more frequent due to climate change.
Risk Management and Resiliency emphasizes the importance of identifying and mitigating risks, which is particularly relevant in the context of climate change. Infrastructure planning must account for potential risks associated with extreme weather events, such as hurricanes, floods, and heatwaves. By adopting a proactive approach to risk management, planners can design infrastructure that is resilient and adaptable to changing conditions. For instance, coastal cities might incorporate sea walls, levees, and floodgates to protect against rising sea levels and storm surges. Additionally, buildings can be designed with materials and structures that withstand high winds and earthquakes, reducing the risk of damage and ensuring the safety of communities.
Continuous Improvement and Adaptation is also a significant contribution of the Three Horizons Theory to traditional infrastructure planning, which focuses on being reactive rather than preventive or proactive. Horizon 1’s focus on incremental improvement aligns with the need for continuous adaptation: as climate change presents evolving challenges, infrastructure must be adaptable to new information and technologies. This requires a commitment to ongoing research, innovation, and integration of new technologies that improve infrastructure performance and resiliency, and doesn’t happen without a plan. One example is the incorporation of renewable energy sources into existing power grids, which not only reduces carbon emissions but also enhances energy security and resilience to fuel supply disruptions. Similarly, the development of green infrastructure, such as urban green spaces and permeable pavements, can mitigate urban heat and manage stormwater runoff effectively.
Integrating Community Needs and Engagement, regardless of its usual relegation to innovation, is also crucial in maintaining core operations, as the needs of local communities won’t stop evolving just because infrastructure has. Effective infrastructure maintenance must consider the social, economic, and environmental needs of the community, ensuring that infrastructure development enhances quality of life and promotes equitable access. Community engagement is essential in identifying critical areas of need and prioritizing investments that will have the most significant impact. This approach ensures that infrastructure solutions are not only resilient to climate change but also aligned with the community’s priorities and values.
Regardless of all this, maintaining the Core Infrastructure as a foundation is paramount. In the context of infrastructure planning, maintaining and optimizing the existing infrastructure serves as a foundation for future developments and innovations. Just as Horizon 1 focuses on sustaining the core business to enable future growth, infrastructure planning should prioritize maintaining current systems to ensure they can support new technologies and expansions? For example, updating transportation networks to accommodate electric and autonomous vehicles requires robust foundational infrastructure. By focusing on the core, planners can ensure that infrastructure remains resilient and adaptable to future demands.
Horizon 2: Expanding Emerging Opportunities
Horizon 2 focuses on expanding emerging opportunities, bridging the gap between maintaining the core business (Horizon 1) and exploring disruptive innovations (Horizon 3). This horizon is about identifying and nurturing new opportunities that have the potential to become significant contributors to the organization's growth. It involves exploring new markets, developing adjacent products, and leveraging existing capabilities to enter new areas.
While operating within Horizon 2, organizations must strike a balance between the present and the future, effectively managing the transition from current operations to new growth opportunities. This requires a strategic approach that involves both exploration and exploitation.
Exploration involves seeking out new opportunities, technologies, and markets that align with the organization's core competencies. This might include entering emerging markets, developing new products or services, or investing in adjacent industries.
Exploitation, on the other hand, involves leveraging existing resources and capabilities to maximize the potential of these new opportunities.
A key aspect of Horizon 2 is growth and expansion. Organizations focus on scaling emerging businesses and exploring new markets that hold promise for future growth. This often requires investing in research and development, fostering innovation, and building strategic partnerships. For example, a technology company may explore opportunities in artificial intelligence or the Internet of Things (IoT) to expand its product offerings and reach new customer segments. Similarly, a healthcare company might invest in telemedicine solutions to capitalize on the growing demand for remote healthcare services.
Within this horizon, organizations must also embrace experimentation and adaptation. This involves testing new ideas and approaches to determine their viability and potential for scaling. Pilot projects and small-scale experiments are common practices, allowing organizations to learn from their experiences and refine their strategies. The focus is on iterating quickly, gathering feedback, and making informed decisions based on real-world insights. This iterative process enables organizations to adapt to changing market dynamics and seize opportunities as they arise.
Another important element is the need for strategic alignment. Organizations must ensure that their emerging opportunities align with their overall mission and vision. This requires a clear understanding of the organization's strengths and weaknesses, as well as an awareness of external trends and market forces. By aligning their Horizon 2 initiatives with their core values and objectives, organizations can create a cohesive strategy that supports long-term growth and sustainability.
In doing so, one of the criticalities resides in leadership and culture. Leaders play a crucial role in fostering an innovative and agile mindset within the organization, as they must inspire and empower employees to embrace change and think creatively. This involves creating a culture of innovation where experimentation is encouraged, and failure is seen as an opportunity for learning and growth. By cultivating a culture that values creativity and risk-taking, organizations can unlock the full potential of their Horizon 2 opportunities. As we’ll see, this is one of the challenges in applying these concepts to infrastructure planning.
Furthermore, Horizon 2 requires a focus on resource allocation and prioritization. Organizations must allocate resources strategically to ensure that emerging opportunities receive the necessary support and investment. This involves balancing the needs of the core business with the pursuit of new growth areas. Effective resource allocation ensures that organizations can capitalize on new opportunities without neglecting their existing operations.
Horizon 2 and infrastructure planning
As Horizon 2 focuses on expanding emerging opportunities, its principles are highly relevant to infrastructure planning, particularly in the context of resilience and climate change. As climate change poses unprecedented challenges, infrastructure planning must evolve to incorporate new technologies, innovative designs, and adaptive strategies that enhance resilience. The concepts within Horizon 2, such as exploration, experimentation, strategic alignment, and resource allocation, provide a framework for developing infrastructure solutions that are not only resilient to current challenges but also adaptable to future uncertainties.
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Exploring new opportunities and leveraging existing capabilities to address emerging challenges translates to adopting innovative technologies and practices that enhance resilience against climate change impacts. For example, cities and governments can explore the use of green infrastructure, such as green roofs, urban forests, and permeable pavements, to manage stormwater, reduce urban heat, and improve air quality. These solutions not only address immediate environmental challenges but also provide long-term benefits by enhancing urban resilience and exploring smart infrastructure technologies, such as sensors and IoT devices, which can improve the monitoring and maintenance of critical infrastructure systems like bridges, roads, and power grids. These technologies enable real-time data collection and analysis, allowing for proactive maintenance and rapid response to potential threats, thereby increasing resilience.
The focus on experimentation encourages infrastructure planners to test new ideas and approaches to determine their viability and effectiveness. This can involve pilot projects and small-scale implementations that allow for learning and adaptation. For instance, cities can pilot flood-resilient infrastructure in vulnerable areas, experimenting with solutions like flood barriers, elevated structures, and improved drainage systems. These pilot projects provide valuable insights into the performance of various solutions and inform broader implementation strategies.
Adaptation is another key component, as climate change necessitates infrastructure that can evolve with changing conditions. Flexible design principles, such as modular construction and adaptable land use planning, allow infrastructure to be modified or expanded in response to environmental changes and population growth. This adaptability is crucial for ensuring that infrastructure remains functional and relevant in the face of uncertain future scenarios.
Strategic alignment involves ensuring that emerging opportunities align with an organization's overall mission and objectives. In infrastructure planning, this means aligning infrastructure development with broader goals of sustainability, resilience, and climate adaptation. For example, infrastructure projects can be designed to support renewable energy integration, such as solar panels and wind turbines, to reduce carbon emissions and promote energy independence. Planners must also consider the social and economic dimensions of infrastructure projects, ensuring that they contribute to community well-being and equitable access to resources. This involves engaging with stakeholders, including local communities, businesses, and policymakers, to ensure that infrastructure solutions are inclusive and address diverse needs.
Resource Allocation and Prioritization is, therefore, a cardinal component of this scenario. In the context of infrastructure planning, this involves prioritizing investments in projects that enhance resilience and address climate change impacts. Governments and organizations can allocate resources towards research and development, pilot projects, and capacity-building initiatives that foster innovation in infrastructure planning. Effective resource allocation also means balancing short-term needs with long-term goals. Planners must ensure that investments in infrastructure maintenance and upgrades do not overshadow opportunities for innovation and adaptation. By strategically allocating resources, planners should support the development of infrastructure that is robust, adaptable, and sustainable.
Infrastructure planning under Horizon 2 aims to build resilient communities that can withstand and recover from climate-related events. This might involve integrating nature-based solutions into urban planning, such as wetlands restoration and mangrove planting, to provide natural buffers against flooding and erosion. Community resilience is also enhanced through investments in social infrastructure, such as healthcare facilities, emergency services, and education centres, which support community well-being and preparedness. By prioritizing resilience in infrastructure planning, communities can reduce their vulnerability to climate impacts and enhance their capacity to adapt and thrive.
As we’ll see, the involvement of communities, the integration between Horizon 1 and Horizon 2, and the balancing of divergent perspectives is one of the key strengths of the application of LEGO Serious Play in this context.
Horizon 3: Creating Disruptive Innovations
Horizon 3 is about creating disruptive innovations and pioneering new markets, technologies, and business models that can redefine an organization's trajectory. This horizon focuses on long-term strategic initiatives that have the potential to transform industries and create entirely new categories of products and services. It is characterized by visionary thinking, radical innovation, and the pursuit of groundbreaking opportunities that may not align with the current core business.
The essence of Horizon 3 lies in embracing visionary thinking and radical innovation. Organizations operating in this horizon aim to explore uncharted territories and develop new ideas that challenge conventional wisdom. This involves thinking beyond incremental improvements and seeking transformative breakthroughs that can redefine the industry landscape. Companies in this horizon are willing to take significant risks in pursuit of potentially game-changing innovations, recognizing that success in Horizon 3 can lead to substantial rewards and competitive advantages.
Horizon 3 and infrastructure planning
As Horizon 3 focuses on creating disruptive innovations that can transform industries and pave the way for long-term growth, this horizon is particularly relevant to infrastructure planning in the context of resilience and climate change because it emphasizes visionary thinking, radical innovation, and high-risk, high-reward initiatives. By applying the concepts of Horizon 3, infrastructure planners can address the challenges posed by climate change and develop systems that are not only resilient but also capable of thriving in future environmental conditions.
Visionary Thinking and achieving long-term goals requires a forward-looking approach that anticipates future needs and challenges, especially those related to climate change. Infrastructure planners must envision what the world might look like in the coming decades, considering factors such as rising sea levels, increased frequency of extreme weather events, and shifts in population dynamics. By setting long-term goals that prioritize sustainability and resilience, planners can create infrastructure solutions that are designed to withstand these challenges. For example, coastal cities can be reimagined with floating structures and adaptive buildings that can rise with sea levels. Urban areas might incorporate green spaces that absorb floodwaters and provide cooling effects during heatwaves. These visionary concepts require planners to think beyond traditional infrastructure models and embrace new possibilities that align with future environmental realities.
Horizon 3 also encourages the exploration of disruptive technologies and innovative solutions that can revolutionize infrastructure systems. In the context of climate change, this might involve developing new materials that are more durable and sustainable or integrating cutting-edge technologies that enhance infrastructure performance and adaptability. One example might be the use of smart grid technology in energy infrastructure, which allows for more efficient distribution and consumption of energy while integrating renewable sources like solar and wind power. Smart grids enhance resilience by providing real-time data and automation capabilities, enabling rapid response to disruptions and optimizing energy usage. Another area of innovation might be the development of bio-engineered materials, such as self-healing concrete or carbon-absorbing building materials, which can significantly reduce the environmental impact of construction and maintenance. These materials not only increase the longevity of infrastructure but also contribute to reducing greenhouse gas emissions.
High-Risk/High-Reward Initiatives are also encouraged within Horizon 3, which means pursuing initiatives that carry significant risks but also offer substantial rewards if successful. In infrastructure planning, this means investing in projects that have the potential to drastically improve resilience and sustainability, even if they are untested or require substantial resources. For example, implementing large-scale geoengineering projects to combat climate change effects, such as carbon capture and storage systems or reflective surfaces that reduce urban heat islands, can have transformative impacts on urban environments. While these projects involve considerable risk and uncertainty, their successful implementation could significantly enhance the resilience of cities and infrastructure networks.
A culture of experimentation and adaptability is essential in Horizon 3, where infrastructure planners must be willing to explore unconventional solutions and learn from failures. This involves piloting new technologies and methods in controlled environments to gather insights and refine approaches before widespread implementation. For instance, planners might test modular infrastructure designs that allow for easy modification and expansion as needs change. Modular systems can adapt to population growth, technological advancements, and environmental changes, making them ideal for long-term resilience planning.
Strategic foresight and scenario planning are also critical components of Horizon 3, enabling planners to anticipate potential disruptions and prepare for various future scenarios. By analyzing trends and potential future events, planners can develop infrastructure strategies that are robust and flexible enough to handle unexpected challenges. This foresight is particularly relevant to climate change, where planners must consider a range of possible outcomes, from gradual changes in weather patterns to sudden, catastrophic events. By preparing for these scenarios, infrastructure systems can be designed to remain operational and effective under different conditions, reducing vulnerability and enhancing resilience.
Last but not least, Horizon 3 emphasizes the importance of strategic partnerships and collaborations to leverage external expertise and resources. In infrastructure planning, partnerships with research institutions, technology companies, and community organizations can drive innovation and accelerate the development of resilient solutions. Collaborating with academic institutions can facilitate research into new materials and construction techniques, while partnerships with technology firms can provide access to advanced data analytics and automation tools. Engaging with local communities ensures that infrastructure projects align with the needs and values of those they serve, enhancing social resilience and support.
Infrastructure isn’t a Company
Challenges in applying the model
Infrastructure planning and management isn’t a company, and applying this model to the current discourse requires some notes. While the theory provides a structured approach to balancing short-term objectives with long-term innovation, applying a company growth model like the Three Horizons Theory to public policy areas such as infrastructure planning presents several challenges, and the complexities of public policies introduce unique difficulties that are not typically encountered in the private sector.
One of the most significant challenges in public policy, including infrastructure planning, is managing diverse stakeholder interests. In the private sector, companies primarily focus on profitability and shareholder value. However, public policies must consider the needs and demands of a wide array of stakeholders, including government agencies, local communities, non-governmental organizations (NGOs), and private sector partners. This results in potential Conflict of Interests, as different stakeholders may have conflicting interests and priorities. For example, community groups may prioritize environmental sustainability, while businesses might focus on economic growth and cost efficiency. Public policymakers must remain accountable to citizens and elected officials, requiring a more transparent and inclusive decision-making process than it might happen within a private company.
The application of the Three Horizons Theory in infrastructure planning might also be hindered by regulatory and bureaucratic constraints that are less prevalent in the private sector. Infrastructure projects are in fact subject to numerous regulations and standards at local, national, and sometimes international levels, and navigating these regulations can slow down the innovation process and restrict the ability to implement new ideas quickly. The bureaucratic nature of government operations often leads to slow decision-making processes, which can be incompatible with the rapid innovation and agility required in what we’ll see is called Horizon 3.
Unlike private companies, which can often secure funding through investors and profits, public infrastructure projects rely on government budgets, grants, and taxpayer money. Government budgets are often constrained and must be allocated across various essential services such as education, healthcare, and public safety, leaving limited funds for innovative infrastructure projects. Furthermore, the need to address immediate infrastructure maintenance and public service requirements can make it challenging to allocate resources toward long-term, disruptive innovations, which is one of the main challenges the world is facing nowadays.
Public infrastructure planning is also inherently risk-averse due to the need for accountability and the impact of political cycles. Elected officials often prioritize short-term projects that show immediate benefits to secure voter support for upcoming elections. This can conflict with Horizon 3’s focus on long-term innovation and disruptive change. The whole public sector tends to avoid high-risk projects due to the potential for public backlash and political repercussions if projects fail (or do not succeed quickly enough).
Infrastructure systems are also inherently complex and interconnected, often spanning multiple sectors and geographies. This complexity can make it challenging to apply a growth model focused on discrete projects or product lines: infrastructure projects require coordination across various sectors, such as transportation, energy, and telecommunications, making it difficult to implement isolated innovations. Innovations in infrastructure must be scalable and adaptable across different regions and contexts, which adds layers of complexity not typically found in corporate growth strategies.
While Horizon 3 emphasizes disruptive innovation, infrastructure planning must also balance innovation with the need for stability and reliability, thus shifting the balance to Horizon 1. Infrastructure provides essential services, so any disruption due to failed innovations can have significant negative impacts on communities and economies. Ensuring that existing infrastructure remains operational and safe can limit the focus and resources available for exploring radical new solutions. Infrastructure projects are highly visible and directly affect communities, meaning public perception and social impact are critical considerations.
Innovative projects must also gain public support and acceptance for reasons that go beyond the political needs of the parties promoting them. Infrastructure only works when it’s used, and this can be challenging if it disrupts existing ways of life or involves significant changes.
The class will focus on tackling these challenges.
That sounds intriguing. Using LEGO to tackle climate-resilient infrastructure design is a creative approach. How do you plan to engage participants? Chiara C. Rizzarda